Willful FBAR Violations: Distinguishing Willful and Nonwillful, Relevant Factors, Mitigating Penalties

The FBAR penalties are not tax penalties and are separated into two categories. The IRS can assess nonwillful violation penalties up to $10,000 per account and, egregiously higher, willful violation penalties up to the greater of $100,000 or 50 percent of the amount in the account at the time of the violation for FBAR reporting noncompliance. The government has the burden of proof in establishing willfulness, which is defined as a voluntary, intentional violation of a known legal duty. However, the IRS is only required to meet the lowest threshold, the preponderance of the evidence standard, to prove a taxpayer willfully violated the FBAR statute.

There are no clear-cut standards for defining a willful violation. Instead, it is a facts and circumstances determination. Many taxpayers are indeed unaware of their FBAR filing obligation. Even though no intentional action is required to evoke the penalty, reckless disregard or willful blindness could turn what would otherwise be a nonwillful oversight into a willful one. Certain factors contribute to the classification of an FBAR violation as either willful vs. nonwillful. Tax professionals working with international individuals need to understand the significant differences between willful and nonwillful FBAR violations.

Listen as our panel of international tax reporting experts reviews the latest guidance for assessing penalties for failing to file the FBAR, including strategies to avoid willful violations.